Cash flow planning

It’s all too easy for a busy firm to lose sight of cash flow planning. When all is going well, there doesn’t seem much need for looking ahead, as the money comes in from sales and goes out on purchases, payroll and taxes.

But when the unexpected happens, such as a customer being slow in paying a big bill, or several large payments needing to go out at once, the business can suddenly find itself short of cash.

Even in the good times, cash flow planning is a valuable discipline. It forces you to make assumptions about what’s going to happen in the coming months, and a good planner will question those assumptions. They will also have contingency plans in place, in case circumstances do not turn out as forecast.

How to assess your future cash flow

If you are concerned about whether your business has enough money to survive the weeks and months ahead, you need to put together a cash flow plan.

This begins with totalling up the cash you currently have available. You then add to this all the cash you expect to receive in the next few weeks. Be realistic in your expectations: for example, do not assume that customers will pay early.

Add the total current cash to the total that you expect to receive. Then deduct from this all the payments that you expect to make. Again, be realistic in your expectations. We have a natural tendency to be optimistic in these situations – try to avoid this.

Having deducted all the payments out, you now have an estimate of how much cash you’ll have in a few weeks’ time. Is this more or less than you have at present? If it’s less, do you expect the downward trend to continue? If you do, that shows you have a serious problem.

If you are facing a major cash flow crisis, act now by calling Business Recovery on 0800 157 7355. We are here to help.

Account for timing differences in your cash flow

Never forget that timing differences are vital when planning your future cash flow. If you are due to make a big payment in the coming weeks, such as a quarterly VAT return, will there be enough in the bank to cover it?

Having put together a plan, the next step is to consider the areas of risk. For example, if you are dependent on one particular client, what will happen if they take longer than expected to pay you?

Having identified these risks, you can then estimate how much cash you will be short of should a problem occur. This gives you a figure you can work towards finding through other means.

If you are facing a very short-term cash flow problem, you may be able to solve it by careful cash management. But if not, or if the issue is likely to be of longer duration, it is time to consider alternative ways of raising working capital.

Include Business Recovery in your cash flow planning

The Business Recovery experts have helped hundreds of UK firms to access new sources of working capital, allowing them to strengthen their cash flow.

This cash comes from a panel of leading commercial lenders, who work in partnership with Business Recovery. Our team have years of experience in matching firms’ needs with the most appropriate lenders and products.

Discover how to improve your cash flow by making a no-obligation call to the Business Recovery specialists now on 0800 157 7355. Our service is entirely free to you, so there is nothing to lose.